The agriculture sector plays a very crucial role in shaping the country’s overall economic growth and development. It remains one of the most economically significant and promising industries in the country in terms of its vast potential and opportunities for expansion and growth.
For years, the agricultural sector has been the unheralded hero of the economy, often operating under the radar compared to the more celebrated services and industry sectors.
However, providing credit to small farmers still faces a multitude of challenges that are mostly associated with lack of collateral and insufficient information on creditworthiness. Agricultural lending was not spared as most farmers have to constantly deal with crop failure resulting from bad weather or pests, low yield and poor quality produce due to underinvestment in inputs, and reduced harvest income caused by market failures in the sale of produce.
To address these challenges, the rural banking industry and the Department of Agriculture (DA)—through their long-standing partnership—continue to empower small farmers and fisherfolk through financing programs such as the Agriculture Guarantee Fund Pool (AGFP).
The AGFP provides guarantee coverage to unsecured loans extended by financial institutions and other lending conduits to small farmers engaged in rice and/or food production projects. To date, 118 rural banks have participated in the program, or 21 percent of the entire membership of the Rural Bankers Association of the Philippines (RBAP).
Apart from the AGFP, the rural banking industry is a partner of the Philippine Crop Insurance Corp. (PCIC), which directly provides farmers and fisherfolk reliable insurance facilities for palay or paddy rice, corn, high value crops, livestock, and other agricultural assets. The PCIC has signed a memorandum of agreement with the RBAP, encouraging its members to participate in PCIC’s agricultural insurance programs. To date, 51 rural banks are participating in PCIC programs.
Meanwhile, the rural banking industry has consistently been supportive of agriculture, also in consonance with its mandate to allocate a portion of banks’ loanable funds to the sector. Accredited rural financial institutions such as rural banks act as direct conduits to the agriculture sector and agrarian reform beneficiaries by channeling the funds specifically allotted by other banks for the program, thus giving rural banks an important role in the funding chain.
Under Republic Act No. 10000 or the Agri-Agra Reform Credit Act, local banks are required to allot 15 percent of their portfolios for agriculture, and 10 percent to agrarian reform beneficiaries. The Bangko Sentral ng Pilipinas revealed that the rural banks and cooperative banks continue to register a combined P29.5 billion worth of loans as of March 2014 to help the agri-agra sector.
By enhancing access of the agricultural sector to financial services and programs that increase its market efficiency and promote modernization in the sector, rural banks serve as a crucial catalyst in rural development.